The failure of the proposed merger between Deutsche Bank and Dresdner Bank ought to have signaled the end of the merger mania among the world's major banks and to have cautioned banks and other enterprises that big does not mean best. But the message does not seem to have seeped through to some people at the top of the banking world.

It has been long argued that Japan has too many banks, but Japan has many fewer banks than the United States. Japan may well have too many bank branches in a world where Internet and telephone banking will play an increasing role, but, more important than numbers of branches, the basic problem has been that Japanese banks made loans to companies without proper assessments of risk and without giving adequate thought to profitability.

The wave of Japanese bank mergers will only help solve Japan's banking problems if those two problems are tackled. Mergers should lead to a reduction in the number of branches, but this will be difficult to achieve because it would inevitably lead to a high level of redundancies. Much of Japan's retail banking can and should be left to the major regional banks, but they will need support from Japan's city and trust banks. The current mergers among Japanese banks have yet to make any major impact on the regional banking scene.